3 minUS economy starts the new year slightly weaker
Guy Wagner The US economy seems to have started the year on a slightly less vigorous note, compared with the robust growth posted throughout 2024, note Guy Wagner and his team in their latest monthly market report "Highlights".
“A high basis of comparison following strong growth in domestic consumption in the fourth quarter and the destructive fires in California appear to have weighed slightly on growth in the first two months of 2025,” says Guy Wagner, Chief Investment Officer (CIO) of the asset management company BLI - Banque de Luxembourg Investments. “The continuing rise in household incomes suggests, however, that the slightly more cautious behaviour of the American consumer is unlikely to become a new trend destined to intensify. In Europe, the prospect of a stable and effective Christian-Socialist coalition in Germany, and the rapid provision of financial resources at European level to rearm the old continent, is fuelling hopes of an economic revival.” In China, the introduction of tariffs by the USA at a time when exports are the most dynamic component of GDP could prompt the public authorities to step up measures to support domestic consumption in the near future. In Japan, GDP growth in the fourth quarter of 2024 was well above expectations, thanks to the strength of exports, although domestic consumption made almost no contribution to growth.
US monetary officials continued to temper hopes of further monetary easing. Guy Wagner
Inflation has been stagnating for several months
After falling significantly from the record levels reached in 2022, inflation has been stagnating for several months. In the United States, the overall inflation rate rose from 2.9% in December to 3.0% in January. In the Eurozone, overall inflation declined slightly.
US Fed continues to temper hopes of further monetary easing
The two main central banks did not meet in February. “During the month, US monetary officials continued to temper hopes of further monetary easing, suggesting a preference for the status quo until inflation shows more tangible signs of slowing,” emphasises the Luxembourgish economist. Even in the Eurozone, the authorities are beginning to show more restraint about the potential for further interest rate cuts, in order to avoid risking the rapid return of accelerating inflation.
Long-term interest rates virtually unchanged in the Eurozone despite a fall in the US
Signs of less robust US economic growth at the start of the year led to a decline in long-term US interest rates. In the Eurozone, long-term interest rates remained virtually unchanged, due to the prospect of a significant increase in military spending on the old continent, financed by additional debt. The benchmark 10-year rate fell only slightly in Germany, France, Italy and Spain.
European equities maintained their favourable trend
In February, the slight decline in the MSCI All Country World Index Net Total Return concealed the heterogeneous nature of stock market trends, both geographically and by sector. Guy Wagner: “Despite Wall Street's weakness, European equities maintained their favourable trend of the beginning of the year on hopes that the probable abandonment of fiscal orthodoxy in the eurozone to rearm the old continent might trigger a more notable economic recovery.” In the emerging countries, Chinese stock markets proved particularly euphoric, with Hong Kong's Hang Seng index rising by 13.4% (in HKD), continuing the rally it had started since DeepSeek announced its artificial intelligence language model in January. “Sector-wise, consumer staples, real estate and finance posted the strongest gains, while consumer discretionary, communication services and technology posted the most notable declines.”
